Cyprus economy to grow 3.1% in 2017 according to CBC June forecasts

Cyprus real GDP is expected to increase by 3.1% in 2017, according to the revised forecasts of the Central Bank of Cyprus (CBC) in June 2017. CBC also expects GDP growth to remain at the same levels in 2018 and 2019, “reflecting the expected strong private consumption and investments”.

In a report released on Friday, the CBC points out that the recovery of the Cypriot economy will continue in 2017 at an accelerated pace, better than the original expectations, underlining at the same time that the recovery should be protected, by continuing structural changes, improved competitiveness and by intensifying consolidation in the banking sector.

“The overall picture of the economy by mid-2017 appears to be more positive than the previous CBC predictions,” says the report, noting that the positive domestic developments are taking place in an international environment that although relatively positive is subject to great uncertainty and geopolitical risks.

The report notes however that major challenges for Cypriot economy remain, despite the progress achieved in many areas. Among the challenges are high public and private debt, high unemployment and a high level of non-performing Loans (NPLs). These problems, according to CBC, explain why government bonds of Cyprus are not yet at the investment grade. However, the CBC stresses that the prospects are auspicious, if the country remain in the same path without deviations.

The Bank also notes that deleveraging of existing loans is continuing, in line with the gradual decrease in NPLs, although they remain high compared to other eurozone countries.

“Their efficient and timely management is considered the most important challenge facing the banking sector and the Cypriot economy in general,” CBC points out.

It also stresses that the attempt to reorganize the domestic banking sector after the crisis in 2013 seems to have positive results, adding that “improved monetary aggregates and restoring investors confidence, support economic growth and the prospects for the development of the Cypriot economy.

However, it underlines that the major challenges in the banking sector remain and pose a real risk to the future prospects of the economy.

The CBC also says that the inflow of deposits, particular by Cypriot residents is consistent with the recovery of depositor confidence as well as the positive domestic macroeconomic developments.

In particular, the domestic private sector deposits in March 2017 recorded an annual increase of 6.8% compared to 7.4% in December 2016 and 2.8% in March 2016.

The deposits of non-residents also recorded a significant improvement returning to positive annual rates in February 2016. Specifically, the annual percentage change in these deposits stood at 5% in March 2017, 1.1% in December 2016 and 0.4% in March 2016.

The annual change in the rate of loans to domestic non-financial corporations stood at -1.2% in March 2017, from -2.1% in December 2016 and 0.6% in March 2016.

As regards domestic households, the annual change in the rate recorded was -0.1% at the end of the first quarter of 2017, compared with -1% at the end of 2016 and -0.9% at the end of the first quarter of 2016.

According to CBS this trend is due to the fact that the deleveraging of existing loans outweighs new loan contracts, giving the impression that economic growth is not supported by private sector financing. As the bank notes since December 2014 (first available data), there is a steady increase in new loan contracts, contributing to the growth rate of the Cypriot economy.

Source: Cyprus News Agency